Podcasts
Untangling spaghetti MGAs, with Accelerant’s CEO
Jeff Radke co-founder and CEO at Accelerant Holdings was the most recent guest to grace the Voice of Insurance podcast, telling a story of explosive growth and an insurance business model never tried before.
Accelerant operates a data-driven risk exchange that connects specialty insurance underwriters with risk capital partners. The company calls the managing general agents (MGAs) it works with its membership.
Accelerant provides capacity to its members, across 22 countries, and at least 240 products, spread across some 180 MGAs active across North America, the UK and Europe.
Radke emphasises that its risk exchange business model is unique, relative to fronting and hybrid fronting models that exist elsewhere in the market, matching MGAs with insurance and reinsurance capital, respectively.
“We call the MGAs that we support members, to remind us that we’re servants… We are either the exclusive or the majority capacity provider for every single one of our members. Those relationships are really deep,” he said.
While Accelerant retains its own stake in these MGAs, this retention has fallen, as it has grown its number of capacity providers, connecting with 12 insurers and 66 reinsurers, investing, via Accelerant, in its membership.
“The members – the MGAs – that’s the supply side. Then you’ve got the risk capital – the investors, the insurers and the reinsurers that want this business – and that’s the demand side. And we get paid a fee to source, manage and monitor that portfolio business on behalf of the risk capital. Very simply, that’s our business,” Radke added.
Each of the MGAs is its own binder, requiring the risk exchange’s technology to be able to deal with the resulting complexity – something many MGAs have previously found difficult to manage.
“Risk capital gives us their pen, and then we manage that complexity, which would look like a bowl of spaghetti in the traditional specialty market, with binders going everywhere and brokers running around,” Radke said.
“What we say to the member MGA is, you’ve got one binder that covers, on average, eight products, so that’s one binder, one relationship, one point of contact. We take care of the risk capital, not on a programme by programme basis, but on a portfolio basis,” he added.
This involves many indices within the databases, keeping the spaghetti unravelled, something Radke said that Accelerant has “spent a lot of time and energy and money on the technology to make that work”.
As the MGA membership and its risk capital backers have grown, the spread of business has grown more diversified, further limiting Accelerant’s exposure. Radke describes himself as “reformed” after many years working in the property catastrophe insurance space, with today’s portfolio dominated by “volume business”, of low severity, low limit, small insureds.
This type of business is also a welcome tonic – “ballast”, he said – for the reinsurance companies invested in it, he emphasised, offsetting to some degree their own books of high severity and cat-exposed business.
The growth of Accelerant’s business model has relied on a number of factors, some of which are cyclical, host Mark Geoghegan pointed out, but are to some measure also secular – unlikely to change. Nowhere is this more true than in the rise of US excess and surplus lines (E&S) business, something US regulators have allowed to pass from tightly regulated admitted markets to international specialty insurers.
“The move to E&S feels permanent. Regulators appear to be happy with it, which wasn’t always the case. The second thing is, the market seems quite happy with it,” Radke said.
The trend towards tailored products – exemplified by what has been termed a ‘Golden age of E&S’ – is a good one for the firm, and something key to its future, he emphasised.
“The third thing…is that we’ve all gotten so spoiled in other parts of our consumer lives, having things tailored for us, I think this notion of one size fits all…doesn’t cut it anymore, right? People insist on specialisation, or they’re certainly willing to seek it out. Specialisation is a trend that Accelerant is quite happy betting on, as are its members. We believe it will continue.”